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China vows deeper VAT reform to boost economic vitality

Zhang Yue
Updated: Mar 20,2019 10:16 PM

China will implement a slew of measures to cut the value-added tax (VAT) rates, making sure that tax burdens on all industries will only go down, not up, the State Council’s executive meeting presided over by Premier Li Keqiang decided on March 20.

President Xi Jinping stressed at the Central Economic Work Conference the importance of larger-scale tax and fee cuts, including meaningful reduction of VAT rates, and called for expeditious efforts in developing feasible and effective implementation plans to deliver tangible benefits to businesses and people.

The Government Work Report this year set out the plan for larger-scale tax cuts, including lowering the VAT rate in manufacturing and other industries from 16 to 13 percent, and the VAT rate in transportation, construction and other industries from 10 to 9 percent.

A host of concrete measures were decided at the meeting to achieve the targets, which will be effective from April 1.

Input VAT eligible for deduction will be expanded and will cover passenger transportation services. Taxpayers will be able to get their input tax on real estate payments deducted in full on a one-time basis, instead of on two occasions in two years.

Taxpayers whose main businesses are postal services, telecommunications, modern services and consumer services will receive a 10 percent additional input VAT deduction before the end of 2021. Increases in any overpaid VAT following this round of tax cuts will be refunded through due procedures.

“The planned VAT cuts must be delivered in no time. Its implementation must be closely monitored to ensure that tax burdens are meaningfully reduced in major industries and lowered to various extent in some industries. All industries will see their taxes go down, not up,” Premier Li said.

“In case of increased tax burdens due to inadequate deductions in certain individual industries, the government will work out targeted solutions,” he added.

In the Government Work Report, Premier Li said that the government’s current moves to cut taxes are aimed at an accommodative effect to strengthen the basis for sustained growth, while also considering the need to ensure fiscal sustainability. It is also a major measure to lighten the burden on businesses and boost market dynamism, and is the result of a major decision taken at the macro policy level in support of efforts to ensure stable economic growth, employment, and structural adjustments.

In 2018, taxes and fees levied on enterprises and individuals were reduced by around 1.3 trillion yuan as a result of multiple preferential tax policies introduced by the government.

The meeting also decided to make adjustments to the export tax rebate rates of certain goods and services and to the tax deduction rate of purchases of farm produce.

It was also decided at the meeting to increase transfer payments to local governments, focusing on supporting central and western regions, as well as counties and prefectures facing difficulties.

“The share that goes to enterprises in the national income distribution needs to be increased to boost market vitality. This will help keep employment stable, expand tax sources and make public finance sustainable,” Premier Li said.